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[2015] ZAWCHC 196
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J V Attorneys v L P Vermeulen and Another (10924/2015) [2015] ZAWCHC 196 (4 December 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE DIVISION,
CAPE TOWN)
CASE NUMBER: 10924/2015
DATE: 4 DECEMBER 2015
In the matter between:
J V
ATTORNEYS
......................................................................................................................
Applicant
And
L P VERMEULEN &
ANOTHER
........................................................................................
Respondent
J U D G M E N T
DAVIS, J:
Introduction
On the 19th June 2015 applicant
obtained a provisional sequestration order against respondent for
whom applicant was acting as an
attorney. The intervening creditor
appeared to be unaware of this application and became aware of it
only after the provisional
order had been granted. Accordingly, the
intervening creditor brought an application on the 28th August 2015
for leave to intervene
in order to argue that the final
order of sequestration sought by
applicant should be refused.
Briefly applicant is a creditor of
respondent in the amount of R13 455.00. According to applicant,
respondent only has assets in
the amount R170 000,00 being a sum of
money that was paid into a trust account of attorneys, Thompson
Wilks, who also at a point
in time represented respondent. According
to the papers, applicant envisages that a dividend of 6 cents in the
Rand will be payable
respondent’s creditors.
The background to the dispute which
constitutes the obstacle to a final order of sequestration being
granted can be summarised albeit
briefly, as follows: In terms of a
consent paper which was incorporated in an order of court on the 24th
October 2014 respondent
and Gysbert Johannes Vermeulen, the previous
husband of respondent, agreed that, in full and final settlement of
any proprietary
claims they may have or may have had against each
other, Vermeulen would make payment of R3 200 000.00 to the Chianti
Trust (the
‘trust’) of which R2 700 000.00 would be paid
within 10 days of receipt of a letter from the Masters Office or date
of decree of divorce, whichever date occurred last, whereafter the
balance of R500 000.00 would be payable in equal instalments
of R100
000.00 each on or before the 31 December 2014 for a period of five
years.
Apart from the assets in the amount of
R170 000.00 and maintenance payable to respondent terms of the
settlement agreement, the
intervening creditor contended that the
respondent had a claim of at least R3.2m against the trust which, in
the intervening creditor’s
view, should be reflected as a loan
account in respondent’s favour in the records of the trust.
The intervening creditor
contends that Mr Vermeulen was required to
pay this amount in favour of the respondent in settlement of
respondent’s monetary
claim but, instead paid the amount to the
trust, in discharge of his proprietary obligations.
According to the intervening creditor,
this was not a donation by Mr Vermeulen or the respondent to the
trust. This averment has
not been denied by applicant, respondent or
Mr Vermeulen. Therefore, the intervening creditor’s argument
runs that the money
was received by the trust from Mr Vermeulen in
payment of the debt owing to respondent. There is no legal cause for
the payment
on behalf of respondent to the trust, other than a loan
that now stands to be reflected as a loan account owing by the trust
to
the respondent. Accordingly the respondent should reflect an
additional R3.2m in her assets.
Mr Nel, who appeared on behalf of the
intervening creditor, submitted that the consent paper made it clear
that this was the legal
position on a clear interpretation of the
settlement agreement and hence the R3.2m was an asset in respondent’s
estate.
The relevant section of the consent
paper reads thus:
“In full and final settlement of
any proprietary claims the parties may have or may have had against
each other they agree
as follows:
6.1 First defendant will keep plaintiff
on his current medical plan or a similar scheme until 31 December
2014.
6.2 First defendant will be entitled to
remain on the current cell phone contract until the date of the
expiry of the cell phone
contract with a limit of R1 000.00 per month
until date of expiry of the cell phone contract.
6.3 Plaintiff shall be entitled to
retain her motor vehicle with registration number CY130 as her sole
property and will transfer
such motor vehicle into the name of the
Chianti Trust.
6.4 First defendant shall make payment
of R3 200 000.00 to the Chianti Trust as follows:
6.4.1 An amount of R2 700 000.00 will
be paid into the Chianti Trust’s bank account within 10 days of
receipt of the letter
of executor from the Masters Office or date of
decree of divorce whichever date occurs last.
6.4.2 The balance of R500 000.00 will
be paid in equal instalments of R100 000.00 on or before 31 December
from date of divorce
for a period of five years.”
Whatever the construction which is
required to be placed on these clauses of the settlement agreement
might be, it should be placed
on record that this Court has not had
the benefit of a copy of the trust deed of the trust nor any of the
trust accounts. Appellant
informs the Court, in his replying
affidavit, however, that the respondent and her children are the
trust beneficiaries and that
the respondent is a co-trustee of the
trust. The question that requires some determination is whether the
construction of the
consent papers urged upon this Court by the
intervening creditors justified in the circumstance.
There are two aspects on which I wish
to concentrate. Mr Nel submitted that clause 6.3 made it clear that
Mr Vermeulen would discharge
the proprietary obligations of the
divorce by settling property on the respondent pursuant to which she
would then transfer such
property into the trust. On this
construction it would be clear that what was transferred would have
been a loan by the respondent
to the trust. Therefore it would follow
that an asset had to be added to the calculation of the respondent’s
assets for the
purposes of assessing her solvency.
The clause is not without pointers to
interpretation. Clause 6.3 provides that plaintiff retains a motor
vehicle as her property.
That vehicle is then transferred into the
name of the trust. I would have thought that, if this clause was
disputed with a measure
of cogency, it could be argued that, unless
the trust paid value for the property, it would have either been a
donation or a transfer
on loan account. So much is clear by way of
the emphasis of the phrase “as her sole property” as it
appears in clause
6.3. By contrast, clause 6.4, which is the clause
in dispute, makes no such provision. All it says is that Mr
Vermeulen will
make payment to the trust.
The question therefore that has to be
asked is whether this payment constitutes property in the name of the
respondent which, in
turn, was lent by the respondent to the trust.
In this case an asset has to be reflected in respondent’s
estate. Without
the benefit of the trust deed or the trust accounts
and, given the wording as employed in 6.4, this Court is constrained
for guidance
to have recourse to the legal nature of a trust. In
Land and Agricultural Bank of South Africa v Parker 2005(2) SA 77
(SCA) at
paras 10-11, Cameron JA (as he then was) said:
“A trust is an accumulation of
assets and liabilities. These constitute the trust estate which is a
separate entity. But
though separate, the accumulation of rights and
obligations comprising the trust estate does not have legal
personality, it vests
in the trust and must be administered by them
and it is only through the trustees specified as in the trust
instrument that the
trust can act.”
Thus, if Mr Vermeulen transferred
assets to the trust, absent any evidence to the contrary, the common
law of trusts would apply.
The assets so transferred would be assets
of the trust.
This is not a surprising conclusion as
this approach features significantly in the case of Estate Welch v
Commissioner for SARS
[2004] 2 ALL SA 586
(SCA), the importance of
which bears some attention in this judgment. In this case, Mr Welch
married twice. His second marriage
was dissolved by a decree of
divorce in 1996. The action was unopposed because the parties had
negotiated a consent paper, which
governed a range of matters,
including the proprietary consequences of the marriage and
maintenance for both Ms Welch and the minor
child.
In terms of the consent paper, the
parties agreed to the setting up by Mr Welch of a trust and the
transfer to it of assets to enable
the trustees to fulfil the
obligation to be undertaken by them. The primary obligation of the
trustees was to ensure that the
provision of the consent paper which
had been made an order of court was so implemented. The consent
paper recognised that Mr
Welch had a legal obligation to pay
rehabilitative maintenance to Ms Welch as well as to contribute to
the maintenance of the minor
child. It provided that in discharge
thereof, Mr Welch would settle certain assets upon a trust to be
created with the specific
intention of providing income for purposes,
thereafter set out in the consent paper.
This is indeed what then happened. The
question before the Court was whether a donation had been made by Mr
Welch to the trust.
Marais JA at para 39 said the following:
“There is no intention to make a
donation in any sense of the word. The funds settled upon the trust
are not intended to
be given to anybody as a gift; they are intended
to be used and settle legal obligations which burden the settlor.
The trustee
undertakes to fulfil the mandate given to him and in
fulfilling it discharges the obligations of the settlor to the
relevant third
parties. If the mere fact that the trustee in his own
right has not paid the settlor anything or given some quid pro quo
(other
than an undertaking to fulfil the mandate imposed by the trust
deed) for the funds given to him for that purpose is to be the sole
criterion for imposing a liability to pay donations tax, it is
difficult to conceive of any case in which a trust can be established
and assets transferred to trust where a liability for donations tax
would not arise.”
The learned judge of appeal then
concluded at para 44:
“In the present case, the facts
are such that whatever view one takes of the definition of ‘donation’
there has
been no donation of R3 216 760,00. If one accepts that a
motive of sheer liberality or disinterested benevolence remains an
essential
element in the inquiry and has not been excluded by the
definition, it is clear that the assets were not settled upon the
trustees
with any such motive. The primary and dominant purpose was
to enable them to satisfy the legal obligations which the consent
paper
which had been an order of court imposed upon Mr Welch.”
(my emphasis)
In my view, this case is relevant to
the present dispute. The taxpayer in that case had proprietary
obligations which he owed to
his ex-wife. They were discharged by way
of a settlement of money to a trust. There is no suggestion that the
assets were not
those of the trust. Indeed this position was the
basis upon which the entire judgment turned.
It must follow therefore on the
strength of this case and the law relating to trusts, that, absent
clear evidence to the contrary,
which is certainly not available to
this Court, it is the trust which is the owner of the amount of money
which the intervening
creditor claims to be a loan account owed to
respondent. There is no basis for the latter conclusion, however
dissatisfied the
instructing attorney, who acted on behalf of the
respondent, might feel about the matter. In short, it is not
possible to include
the R3.2m as an asset within the estate of the
respondent.
This is not the end of the matter.
Much was made of the nature of this application. Mr Nel contended
that, having regard to the
content of the applicant’s founding
affidavit and the various arguments advanced by applicant on behalf
of respondent against
the intervening creditor, it was clear that the
applicant was well disposed towards the respondent and that the
application was
aimed, in his view, solely at giving respondent
relief against an intervening creditor. It was therefore a friendly
sequestration
which had to be dealt with by the court with the most
greatest of care.
Indeed this caution is correct.
However the fact that an application for compulsory sequestration is
brought by a creditor, who
is prepared to cooperate with the debtor
or who is motivated partly by a desire to assist the debtor, does not
preclude the granting
of the sequestration order. See for example
Maritz t/a Maritz and Kie Rekenmeester v Walters and Another 2002(1)
SA 689 (C) at
703. Courts have accepted, as they must, that as a
matter of policy, friendly sequestration, such as the present, have
to be scrutinised
with a great deal of care to ensure that the
requirements of the Act are not subverted and that the interests of
creditors are
not prejudiced. See for example, Epstein v Epstein
1987(4) SA 606 (C) at 611.
But, in this case there is, absent the
claim of R3.2m, abundant evidence that the respondent is insolvent.
On the basis of these
papers a small dividend will be paid to the
creditors. This dividend may not produce a princely purse but,
whatever arguments
have been raised by Mr Nel, it appears that there
is little reason to contend that some dividend sufficient to justify
a friendly
sequestration notwithstanding, a careful scrutiny, as is
required in such applications, would justify a discharge of the
provisional
order.
In summary, the main argument of the
intervening creditor was that the respondent is insolvent. There is
no evidence that has been
put up by the intervening creditor, other
than some inferences which cannot irresistibly be drawn from the
papers, that the respondent
is not solvent. The secondary argument
which was not pressed with the same level of enthusiasm, namely, that
the order should
be denied on the basis that there is no advantage to
creditors, cannot be justified on these papers.
Accordingly, on these facts the
provisional order of 19 June 2016 is made final.
DAVIS, J